Volatile markets spurred disappointing trading revenues at Citigroup and dragged total capital markets and banking revenue down 11% to $5.27bn (â¬4.2bn) in the second quarter from $5.9bn in the previous quarter.

Although Citigroup took a positive spin on its earning as they had surged compared to the same quarter last year, in fact many of its core segments had suffered significantly when compared to the bank's results in the first quarter.

Citigroup's stock fell around 2% in intraday trading on the New York Stock Exchange amid a harsh market environment.

Fixed income trading revenues in the second quarter were $2.76bn, an increase of 51% compared to the same quarter of 2005, but down 12% from $3.1bn in the first quarter of 2006.

Citigroup's equity markets revenues of $945m were a marked improvement on the $728m in profits the bank recorded in the second quarter of 2005, but showed a 24% drop on the first quarter 2006 revenues of $1.17bn.

Investment banking revenues of $1.15 billion fell 5% from the first quarter 2006 revenues of $1.2bn.

Many Wall Street analysts, including Bear Stearns' David Hilder and Punk Ziegel's Richard Bove, said trading revenues were disappointing, but not indicative of long-term issues. Citigroup executives blamed the softness in trading on the bank's emerging-markets businesses.

Chuck Prince, chairman and chief executive of Citigroup, said the corporate and investment banking division achieved its second highest revenues “despite challenging conditions in the emerging markets. We are very pleased with the momentum we are building.”

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Citigroup also had small dents in its second-quarter revenues from investment banking, which comprises capital markets underwriting and advisory work.

Equity underwriting revenues fell from $286m in the first quarter of 2006 to $284m in the second quarter, while debt revenues fell 6% to $670m. Advisory revenues rose modestly from $295m in the first quarter to $296m in the second quarter.

Overall revenues from capital markets and banking, which along with transaction services forms Citigroup’s corporate and investment banking unit, fell from $5.9bn in the first quarter to $5.3bn.

Citigroup chief financial officer Sallie Krawcheck said on a conference call that the firm has many deals at the ready: "Our pipelines in equity and M&A are at record levels." Krawcheck warned, however, that volatile markets could affect the deal pipeline.

The firm's alternative investments division improved performance compared to the previous quarter, although Citigroup took a sizeable hit on hedge funds. Private equity revenues rose dramatically - up 58% over the previous quarter to $516m. The firm's revenues from hedge funds, however, fell from $107m in the first quarter to a loss of $43m in the second quarter.

Punk Ziegel analyst Richard Bove said in a research note: "Citigroup had a disappointing quarter. Margins were down, loan losses were up and trading did poorly. However, loan volume was very strong, trading should come back and margins will improve when interest rates fall. The net result is that we still want to buy this stock."

Group net profits rose 4% to $5.3bn as a 10% rise in net revenues to $22.2bn outstripped a 16% increase in expenses, which hit $12.8bn, up from $11bn a year ago.